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Kyle Robins | Just how difficult is it to make a living selling and buying options? |
I know "day-trading stocks for a living" is kind of a joke nowadays (although, yes, I'm sure 1 out of 50 daytraders are able to make a living out of it), but what about options trading?
I have a fairly solid background in financial markets, but I've never explored options. Can I, with no more than $20,000 really make great money selling and buying options?
The stock market alone could earn me 11% on average. What kind of year-end returns could I expect trading options?
Please no links to advertisements! Thank you! |
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Adam J
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I'm actually a fan of selling options on stock I already own. Basically if you're the guy selling the contract to buy 100 shares of x stock at y price, you:
1) Get cash up front.
2) Will make money beyond the cash you get up front if the option is actually excercised (assuming the strike price of the option you sell is greater than the current price of the stock your selling.)
3) Aren't taking any big risks that you wouldn't be taking anyway by holding the stock.
Of course you risk making less money that you'd otherwise make if you simply held the stock and it goes well above the strike price. But most options expire worthless, and quite a few of the ones that don't probably still don't make enough to cover the contract price (ie your still better off).
How much you can make doing this depends on the stocks you invest in and the manner in which you do it. Not shockingly people are willing to pay more for options on a hot growth stock like Apple (a Sept 140 call contract trades for $420, slightly more than a 3% yield) than they are for a value stock like Walmart (a Sept 45 trades at $45, a 1% yield). Also the closer the strike price is to the stock's current price the more its worth but the more likely it is that the contract will be excercised (an Apple Sept 140 contract is worth $420, a 150 is worth $140, a 160 $45, etc). I generally sell contracts that are short term and fairly far out of the money (as far as I can go while still making a decent return).
Okay, that was a lot...
Buying calls or puts is obviously far riskier. My advice would be that you should only buy options rarely, if at all, and look for options that don't expire for at least a year (more time is relatively cheap when buying options--the first month is the most expensive, as is the first year, etc).
And to answer your originial question-- unless you are VERY lucky (and have taken a huge amount of risk) I doubt you could make a living in the short term off of options. But you should be able to augment your returns by selling calls and over the long term that can help the 20k grow.
Good luck. |
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Jeff H
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WHATEVER YOU DO, PRACTICE ON PAPER FIRST FOR SEVERAL WEEKS. See the links below for places to learn and practice.
IMO, most options traders like you and l
LOSE.
I did it for a while. IMO Options are a form of gambling like day-trading. Most of my bets were small winners. My last one cost me $4000.
Options are a form of day trading for some. Most of my positions lasted a week or two. The result was the same as a day trader, Win some Lose some.
I started with a loan of $8000.00 ... That should have put me on the Dumb and Dumber list. I got lucky ... it was a small winner and I paid the $8000 back but I wouldn't do it again since I have actually traded options. It would have taken over a year to pay that back on my income if I had lost my position. Between the time I bought the position and sold out, the stock fell out and recovered nicely. It was a friendlier market than today.
Yes -- you can do well with $20,000. IF you pick carefully. IF the market doe not spook on you as has happened this summer.
Remember Options have hard deadlines. If you buy a stock and believe the market is in temporary flux, you can hold on to the stock. If you are in an options position and the market bombs on the wrong week, you're BROKE.
My question to you is ... IF you lost the whole $20000 (which many options traders do), HOW would your life be impacted? |
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mark
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Very Difficult
Day trading is selling stock
Options trading is selling an option to buy the same stock at some future date. If anything, it is 10 times more complicated. Options trading is closer to playing the slot machines in vegas than it is to stock trading. |
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Joyce
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I trade options. Yes, you can make great returns, but you can also lose your shirt. Be very, very, careful and make sure you understand them and the market. And with the uncertainty lately in the market, it has been very hard to understand the market.
For the record,when the Dow was breaking records above 14,000, I was down 75% for the year and boy did I feel terrible. Everyone around me was getting a great return. Then with options I figured out how to make my money back (I actually ended up depositing more into my account) and now I am up about 30% for the year. I made some mistakes by buying way out of the money options on a stock that didn't move with the rest of the market. Now I am playing it safe with in the money options. Less risk, less reward, but still a good reward. I have also sold some puts on stocks that I wouldn't mind owning. Last time I did this, I got assigned the stock. Now I have to wait for the stock to go up to break even on that position. There is a learning curve with options. Try paper trading first. |
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Rasc@l
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Do you want the truth?
It's hard as hell. Do you know why most traders use other peoples or funds money? Because if they risked their own money they would be homeless in a year.
Realize this. Trading is a zero sum game. If I make 1000 on a trade it means some other poor idiot just lost 1000. I traded currency for an energy company for a while. I was in a room with physical traders as well as financial traders (the ones doing options with no intention of ever taking delivery of anything). And even the best trader would have off time when he lost big time. It was expected that a trader would sometimes lose his ***. The good traders would get back on the horse and trade again some of them would get gun shy and never be worth a dime again.
So yes you could take 20,000 and turn it into 100,000 in less than a week if you got lucky.... but odds are you would lose it all in less than 2 months. You need a lot more money behind you to have any type of chance to do trading that would pay off. In currency trading I had a year where I was up 2 million in less than a month, the flip side is I lost 1 million over one weekend. Do yourself a favor. Put half the money in a mutual fund and the other in a CD. Hell put it all in a CD and you'll have more money in a year than you would if you tried trading. |
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Sang Suci
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Experienced option traders can make 3% per month consistently. Some proclaimed that they can make 6%. As for myself, I think the most reasonable return i can get by trading option is 1% per month. Now, that may not sound much compared to your 11% on stock market. But, with the stock market, your gain would most likely be on paper, not cash.
After we understand what % we can expect, we need to multiply it with our capital to see if we can live out of it. As you have 20k, 3% per month will amount to 600 dollar, hardly enough to pay for groceries.
Therefore, 100k is the minimum I recommend if you want to make a living as a trader. |
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Crookedlettaman
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The returns in the stock market, including dividends, average 7.5 percent long term. Many options traders make excess of 20 percent on capital, but they are armed with advanced tools like the Black-Scholes model. Since you have background in the markets, you can make a solid return trading options. It wouldn't hurt to familiarize yourself with some of the factors that influence an options price: delta, gamma, vega, theta etc. |
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Frank Castle
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Very.
I suggest you to stay away from Options.
It's not wise to invest in options if you don't have at least $250,000.00 USD.
I am a Portfolio Manager with over a decade of experience in the Stock Markets and I will email you a few stock tips for FREE and you will make at least 25% in a year ($5,000.00 USD) and that should be enough for you. |
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